welcome to today's "worldwide exchange." he i'm kelly evans and these are your headlines from around the world. social democrats take control of the house and the eu is forced out of power in lower saxony. plus, optimism by the u.s. as republicans attempt to break the budget stalemate in congress. investors pulling back in japan as the boj begins its two-day meeting that's widely expected to back more easing and a new 2% inflation target. and heavy snow bringing travel across northern europe. hundreds of flights canceled here in the uk.

france and germany, too, with disruptions expected to continue for several days. >> yes. welcome to "worldwide exchange." ross westgate is away. he will be back later in the week from davos and along with plenty of other people and a lot of great guests. it's a three-hour program. the first three hours, i think the third you'll have to flip over to cnbc to catch. we will be heading out to washington as the capital prepares for the inauguration of president barack obama. but will he spend the next four years at the mercy of republicans? we'll explore that. plus, we'll assess if israel could be medicining for a right coalition as benjamin netanyahu says he is prepared to work with the naturalist home.

and we'll take a look at travel chaos across the continent as snow and freezing conditions cause plenty of disruption in the air and on the road. now, germany's social democrats are celebrating a stunning victory in lower saxony secured with the victory of just one seat. support for angela merkel's christian democrats fell by 657 percentage points, but the chance ler herself continues to ride high on opinion polls. for more on what all of this means, silvia wadhwa is here to join us on set. good morning to you. i guess, is this -- this is being presented as a blow to angela merkel or at least to her party. but given there's just a one-seat differential in the outcome, is that too strong? >> yes, it is.

i think that there are two trends here. one trend is that both major parties, the social democrats and angela merkel are not really on a winning streak. they both have problems. the social democratic contender, the federal elections, is thinking fast or has been over the past two weeks of the popularity threshold and angela merkel has been riding and both of their parties are dithering. the sbc slightly inching higher and the sdu inching lower and they're both losing ground in a grander scale. it's the small parties that are the winners, definitely the green wes a record high of over 13%. they're the ones that won the election and lost it for the cdu, not stoeshl democrats themselves. and the liberals, the sdp, many had counted them out and there was an expectation or there was a fear for some that they couldn't even make the century

hurdle that you need to get into parliament. they beat that. about you also for the personality ratings and the criticism on a federal scale, but that was his home turf so there was a lot of sympathy vote going in there. the big parties will have to look carefully for coalition partners. the social democrats will try to align themselves with the green that might not be enough. the stronger the greens get, the more the social democrats usually lose and something similar you have on the other side with angela merkel, cdu and her coalition partner. so at the end of the day, the relative strength of the small parties might push two big parties into a grand coalition again. >> and that's giving some comfort to markets again. silvia wadhwa, we appreciate your time this morning. allen capper is here on set for the first hour. what do you make of the

situation there? how important is it for investors? >> i think the main thing investors should focus on are those deteriorating numbers. does that change the german political economic? i'm not convinced the population will be that concerned yet. but either from a political perspective or economic perspective, if these numbers deteriorate, we'll have issues. >> and this is a point on, whether things are starting to rebound. does it seems as the though the numbers are coming in heavier than expected? >> the market is looking at what was said last july and says the tail riske is diminished significantly and as a result, we see a great rally, we see it in equities or we see it in credit.

they're looking at the normal markets getting worse. >> and, of course, the focus on the german political election is much more about policy response generally to the european union, the euro project, i should say. we have the euro group separately meeting. we have this little issue of cypress. in terms of gdp, it's little. politically, though, it could be much more significant. tie this altogether for us. how important is an essential change of power in germany to these continued effort to resolve the crisis in cypress or other member states? >> i think the key issue is that germany is a big importer from spain, italy and the periphery. if the german numbers weaken, we'll see that later in a periphery. >> especially through spain.

>> ultimately, this is really an economic story. the periphery are a lagging indicator of what's going on in germany. my concern is sooner or later, these peripheral equity may start to be under pressure again. what are your positions on debt? >> i think at this stage we're still comfortable with the core. the reason, there's probably another risk off take his. whatever the reason behind it, it tends to protect the periphery, not the core. for example, france continues to perform very, very well. again, germany, it performs very well, yet the underlying fiscal issues remain quite acute. why? think back to the 1990s. japan, the fiscal situation degraded. what happens to jgb? they went down. so for the time being, i'm okay with the core, but soonerer on later, this is the risk the market has to focus on. >> allan, stay with us.

we'll get plenty or thoughts from him. we want to check in on markets and look a little bit at equity these morning first. the stoxx europe 600 is opening down 0.2%. we're roughly split between decliners and advancers. asian trade overnight, the nikkei was giving back some of its gains as the yen strengthened there. that didn't necessarily help sentiment, but european bourses doing okay on. the ftse 100 up about .1%. about .25% for the xetra dax. the cac 40 is the laggard. let's take a look at bond rates. we were speaking to allen about some of these. down across the board. we're seeing yields drift up a little bit everywhere. the bund yield, moving up to 1.75%. we were below 5%, though, last week. italy moving up 4.116% and the

10-year yields still staying above 2%. so an interesting differentiated trades higher there this morning. quick look at forex. the dollar/yen, down .7.5%. after juvenile oomphing above 90, failing to hold some of those levels and giving up some of the yen strengthening a bit. for more on how markets traded overnight, let's get straight out to will i sixuan. >> thank you, kelly. it's a mixed picture for asian bourses. the nikkei pulled back ahead of the boj announcement tomorrow. investors are expecting bull easing, including a 2% inflation target. but after hit ago new low, the yen has paired back some of its weakness against the greenback. exporters were broadly weaker on profit taking. in china, the shanghai composite ended higher by .5%.

b shares also poured a hope for programs at a premium. elsewhere, the hang seng finished a touch weaker. bp shares fell over 1% today after the country's largest profitmaker issued a warning. also a flat session for south korea's kospi ending .05%. and down under, australia ended marginally in the green. shares of national australia bank rose nearly 2% today after reports that it may get an offer to offload its loss make uk wrench. india's sensex is now trading higher by about .25%. kelly. >> thanks very much for that. we'll have more on trading in

india elsewhere in just a little bit. u.s. republicans indicated on friday, some willingness to vote in favorite of federal borrowing authority by three months. meanwhile, speaking of nbc's meet the press yesterday, charles schumer says the senate will pass the budget for the first time in three years, but he stressed the plan will include opposition by new revenue. it would seem as though the markets are reading this favorably. talking about pushing this issue three months down the line, how positive of an outcome is that? >> i don't feel comfortable about that. my concern is you keep on pushing it back, the market feels good for the first couple of months, but then it knows it has the problem coming for june and then september. so i think this would be a very,

very dangerous outcome. but probably lurking in the background for the u.s., as it lurk he in the background for the eurozone, as well, it's not just about the debt ceiling, they have to get the debt down. the debt ceiling may get raised, but it's not being tackled long-term. >> it seems every single time consistently we get the opposite outcome. which means some areas are consistent and it raises debt levels going forward. >> it seems to me as though we can't fix this one because democratically it's not possible. why? because there are so many verses who are automatically vote to increase the debt because the number of people who own entitlements or benefits is relatively high. and i think you're seeing this failure both in the u.s., in germany and to an extent in the uk. >> the trouble is for all of those economies maybe some of

the european ones are under pressure by the government. but the problem is, if you look at issues in the u.s., they're just so low. there's no ability to cut in the long-term. how do you push through entitlement reform and address those issues, especially if there's no market pressure right now? >> my sense is that you don't. i don't understand how that can be achieved and, therefore, i suppose what i struggle with is what solution can the government find? the bank of japan, if you monetize the debt in a low inflationary environment, is this a free lunch? >> right. >> in the uk, it has turned out to be a free lunch. would it in japan? possibly, yes, and, therefore, i wonder if these issues ever will be addressed. >> and what's so interesting, you're seeing these bizarre rates happening in a monetary policy. we feel like we're in a whole new regime where people feel like it doesn't matter at all.

wondering if it matters at all how much you spend and borrow in these situations. how does it change, if at all your strategy from here? >> it makes having a long-term strategy really, really tough. and you can see that in the markets right now. what people see by more investment, it gets pushed into treasuries, into eks, and we see markets trading at very elevated levels. relative to fundamentals appears to become the norm. and i would argue that we're now in a world where it's very difficult to recruit any decent returns. as a result, as investors, we're going to have to live with that. >> and a lot of people are just closing up shop and saying, i don't see the runs. >> well, i think the trouble is, the money has to go somewhere. the key issue is now where do i put the cash where it's going to be safe and where i'll at least get it back. it's now about minimizing risk. >> and pull forward, that seems to be a lot of the concern.

we'll get into a little more of this and we'll talk about just what we've seen with president obama's first return to office and what we've might see for the next four years. and with more people looking to move their money out of bonds and maybe into equities, is it time to look at european stocks? there's plenty more of is that discussion on our website, cnbc.com. german chancellor angela merkel lost a key regional vote in lower saxony. the bellwether for germany's upcoming national election. you can read about that over on our website and the world economic forum, davos kicks office later this week as global leaderes and politicians descend on switzerland to discuss world affairs. cnbc asks is davos the place for responsible capitalism or is it snow polo for the super rich? what do you think? >> i think we have to give them the benefit of the doubt.

at least for the time being. let's talk again later in the week. >> are you going? >> no, no, but i'll be watching you. >> excellent. good answer. there's plenty more at cnbc.com if you want to see more for that coverage. and coming up, a 2% inflation target in japan. is that wishful thinking or a credible goal? it might depend on just how low you think the yen will go. we'll be right back. what are you doing? nothing. are you stealing our daughter's school supplies and taking them to work? no, i was just looking for my stapler and my... this thing. i save money by using fedex ground and buy my own supplies. that's a great idea. i'm going to go... we got clients in today. [ male announcer ] save on ground shipping at fedex office.

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welcome back to the program. the yen hit its 2 1/2 year high against the dollar before bouncing back today. under publish pressure to pull the country out of inflation, the bank is expected to pull a policy of quantitative easing and a much hiked 2% inflation target. for more on what we think is going to happen here, jeffrey from ubs joins us right now. good morning. >> morning. >> this meeting has been talked about for months going back to the election of shinzo abe in november. how important is it? what's at stake? is it all about 2% target? >> it's very important, but i think it's more about the 2% market, especially for the fx

market. we're looking for another expansion in the region of 10 trillion. but the question really, right now, is what more can the boj do to consolidate this dollar/yen rally. they've been told from japanese officials they like to see dollar/yen near 100. further setting an fx floor along the lines of what they have been been doing. it's a bit hard to see what they've been doing. there are probably expectations a bit scaled back and that's why we're seeing some profit taking and nonpositions among dollar/yen. >> we are, jeffrey, hearing that there will be some joint press conference in 2010. are they using as much as the eurozone or the u.s. has in symbols and rhetoric and speech to talk the yen down? >> clearly, you need a coordination right now between the government in japan and the central bank to help drive market expectations. but right annoy, it's more about the government guiding expectations and the central bank listening. having that press conference,

having any sort of symbolic move and we've been counting on symbolic moves and symbolic rhetoric over the past few weeks now to drive the yen lower. but the market really needs to see something substantial, needs to see maybe an open-ended commitment to asset purchases or maybe even a drop in the interest on reserve rates to zero. i think that could send dollar/yen higher. but on the note of japan's national partners, we need to be a bit careful here. there have been commentary suggesting that they're a bit upset with what the japanese are doing right now, more talk about currency wars. so maybe with japan's international partners in mind, they need to be a bit careful about exchange rates. >> right. >> one of the things that i've been struggling with for a long time, if i go back to economics 101, it would seem to me that you print more yen, the value of the yen goes down. why is this time any different?

why would it be this time printing more yen will drive the currency in a meaningful way lower? >> that's a great question. this question, a lot of them have been asking. it just seems there's a lot of change in expectations, the expectation that this will be different for month apparent reason. but the other matter is positioning. i think right now this more in dollar/yen is a lot more position driven than fundamentals driven, whether you believe and whether the boj can do anything or not, you've been in this risk on environment in the first quarter over the last few weeks, certainly, and there's a need for the carry trade to be put on. there's a hunt for yield. we're seeing it in the euro, we're seeing it in the hunt for markets. they probably need to go with these right now. whether they believe it or not, given the momentum going, probably need to pick up some carry while we still can. >> are we back to that world where the yen is the carry trade? >> we might be halfway there, but the rest will gend on what the boj can achieve and the global environment.

but then the carry trade should be able to do well. and that is one of the views right now. we think the u.s. yields will be high, we think u.s. yields will be stronger. all of that could be derailed by a nasty shock out of the emerging markets or the eurozone. >> or a shock out of the u.s. itself. jeffrey, thanks very much. >> thank you. u.s. president barack obama began his second term at the white house. everyone decked out in blue pretty much and obama put his hand on the bible to a. >> i barack obama do solemnly swear. >> that i feel faithfully execute. >> the office of the president of the united states. >> the office of president of the united states. >> now today, president obama will attend his public inauguration in washington. the reason why that ceremony happened yesterday is the president that's be sworn in by i think it's noon on the 20th. that was the private sayre mope.

the private one takes place today. as many as 800,000 people are expected to attend the swearing-in in washington. the president will repeat his swearing in and give the traditional speech. if you're wondering how markets have done since president obama took office, 10 5/% return for the nasdaq, 65% for the dow. we're not necessarily attributing this to president obama himself, but you can look at how oil markets have traded over the last four years. the recovery from the credit crisis had pretty much most to do with the trends that we're seeing here. present adding almost 60%. nymex adding 34%. allen, you know, the point of these charts is during, i guess, more normal times which we know don't influence markets in any material way anyhow.

president obama came into office when we had just been through this tremendous crisis. is it any surprise that we're sitting at these levels two years later? >> i think the real surprise is that the fed have been so successful at stabilization the markets in the face of some fairly horrific conditions. so i'll actually say those charts are pouring more reflection of what we've seen from the past than what we've seen from the president. if anything, when we look at the policy making process world would it, it looks like paralysis compared to what the central banks are doing. >> and the mood in d.c. is very toned down, subdued. if it were up to the markets, maybe they would have the torn horns out. but to the point, there's no sense of celebration. >> i sense it's not politically correct right now the celebrate. now is the time of austerity. people are suffering, individuals are in distress, and i suspect that's possibly why the glamour to an extent has gone out, the president has gone out of many businesses, as well.

>> do you like u.s. credit here? either sovereign credit or to talk about some of the other investment classes, high yield, which have been on a budgetary. how are you positioned? ? i think certainly for u.s. high yields, i'm very nervous, indeed. on one hand, i like the growth story in the u.s. and that should point moving into high yield. i'm a bit reserved because i think spreads have come in so much, it's really hard to recommend large overweights there. u.s. investment growth, my main concern is we will be very, very agitated surrounding the debt ceiling. as a result, we may see a bit of widening in the short-term. but i've been negative on the investment grade market practically. from a strategic point of view, looking at the year-end, i think we'll see -- >> there is some talk of bob pisani and some others at cnbc being a rotation, not from stocks to bonds and from industrials, for example. do you see that happening on the credit side? financials versus nonfinancials? >> i think here the key is going

to be what happens surrounding the sovereign debt crisis. if that degrades over time, the question i'll be asking is financial spreads trading tighter at an index level, how do we justify it? if you look back over the last ten years, how many non -- in itracks have been taken out of the index that they've gone bust? two. >> two 37. >> how much sovereigns have gotting themselves into the program a lot more? my sense is nonsense is the closest thing to risk free. >> better news for them. just a quick nose that according to a cnbc "wall street journal" poll, 43% are optimistic about president obama's second term. we want to know how you feel. get in touch with us, tweet us, @cnbcwex. any questions for allen, i'll

pass them along. coming up next, luxury giant richmon met its outlook for the fourth quarter. but is it losing its shine?

welcome to "worldwide exchange." lekz blow for angela merkel as social democrats take control of germany's upper house. the cdu is edged out of power in lower saxony. and european markets edge towards their lowest in two years. and republicans attempt to break the budget stalemate in congress. investors pulling back in japan as the boj begins its two-day meeting. it's wooik widely expected to back a new 2% inflation target. and heavy snow bringing travel chaos across northern europe. hundreds of flights canceled in the uk, france and is germany with disruption s expected to continue for days. any minute now, we're expecting the trends in lending report from the bank of england. let's get a quick check ow how we're trading. adding gains across the board let by the xetra dax which we

haven't seen in some time. the ibex doing its part up about a third, as well. the ftse adding about .2r5%. and swiss luxury giant richmont in the news. it has missed analyst estimates with a 5% rise in quarterly sales. it's cautious on its outlook for 2013. previous buoyant asian pacific region reported no growth in the quarter. that's been plenty to spook investors. allegra carrie, welcome. >> good morning. >> richemont comes out and is it's not necessarily that it missed on revenue in the third quarter, so much as what it's saying about asia. >> absolutely. i think the trend is worrying in asia, as well. we have the first flat sales growth in the quarter which is the slowest we've ever had in the last two years. i think that is worrying, although last year's comps were very difficult. we have double digit comparables. going forward, that does ease

and that should hopefully start to improve. what is concerning, though, is the whole side of the equation remains weak and they have been pulling back. what they're selling into their retail partners, that is key across the sector in the last few weeks. >> i was just going to ask about that because we usuallily focus so much on talking generally and we forget that there's two different kinds of businesses involved. what is happening at the wholesale level? >> wholesale tends to be weaker when things slow down. but there's a self-help initiative going on here. there are some accounts in europe given slowing demand. the company is pulling back their own stock just to prove they're the quality of their network and increasing the distribution control which is the key things we've seen in the sector in the last year. >> you think this is led by the richemonts of the world? >> it's a combination of both factors. there tends to be an outperformance of retail. oeshd, you have the companies want to go preserve the quality

of the network and improve it and limit their credit risk. there's a combination of falthers going on. >> and it comes after swatch, and it reported results. talk about demands. shares took a hit there, too, because it was asia that showed the weakness. we know the asian buyer res traveling over here, they're buying over here. from that point of view, what's the real worry among investors about these sales number necessary asia? is it a sign of more to come? >> i think longer term, it's still probably early days in terms of luxury in the sector. year, you're up against very different availables. my view is optimistic for the rest of the year. i think in the second half you'll have easier comparables. given we're just scratching the surface of luxury penetration in china, that's going to continue to do better increasingly as the year progresses. >> i'm hearing mixed messages. on one hand, you started quite

positive in your last few comments, yet asian economies weakening and clearly numbers weakening. just looking at the sector for a kind of -- for instance, for the totality, where am i best putting the cash? am i best sticking to luxury goods, feeling as though there will be, as you said, some additional money coming from asia or will i start with more conservative names? where will it go? >> as a whole, luxury tends to be highly correlated by gdp growth. that correlation can break down in an emerging market. in a given market in a given period of time, you can see a very different progression. the '80s and '9s is a very good example of that. like kelly said, there has been the fx related shift in spending in europe over the last few years. over the long eer term, this ha

huge competitive advantages with strong fundamentals. so i think we're going to see the sector continue to do well. that said from a stock market angle, the shares have risen nearly 30% in the last three months. clearly a lot of anticipation and improvement in time that is in the share price. >> and richemont was the best performer last year. i think i heard carolyn say up 55% or something like that. do you buy, then? do you buy on the weakness here? are they get ago sale on richemont? i have a hold on the target price. so i think given the cautiousness in the statement today, albeit it is a conservative company, there is a certain degree of uncertainty involved. the watches and jewelry tend to be the most cyclical segment in luxury. even with the bull back we're seeing today, i would hold off to get into these shares. >> within the sector, which areas do you recommend? >> ppr. i have a 170 euro price target on that stock. i think this is a name which has

huge potential still, it has great momentum. and there's still margins with a lot of upside potential relative to the peer group. despite all of that, it's trading on a 20% to 25% discount to its peer group if you strict out the luxury component and i think it's university jujustifi. >> do you have a accelerating? >> i do have a accelerating on adidas. it's clearly an athletic company. i think it's facing difficult comparatives from the events of the first half of last year and it has some problems to resolved with reebok, its underperforming brand. >> we'll leave it there, then. allegra perry from cantor fitzgerald. potentially maybe richemont stocks on sales. now, the growth mortgage lending figures we were expecting. they showed an increase of 11.7

billion pounds, this compared with 12.7 billion in november. so a deceleration in terms of mortgage lending during the holiday period. current account holdings, that's when the european central banks separate issue. we're going to get minutes from the bank of england out later this week. allen, any significant here in the fact that mortgage lending stepped back in december? i think it's very hard to look at these numbers on a month to month basis. that in and of itself doesn't concern me. my next focus for the uk is clearly gdp numbers. most importantly, what is the lip of the bank of england going to do when the government changes? we'll get more visibility on that on february the 7th. but until then, i think the markets will hold up on the uk and probably take a view sometime later in february. but my sense is now is the time to be strategic to be planning. what are you going to do with your uk holdings later in the quarter sthp. >> if we show this contraction, about a 1% contraction, i think

it's market expectations, how does that change trades, if it does at all? >> i think there's two challenges there. the first one is clearly trickle recession. the other is is the uk outperforming europe? surely the uk is probably the better hope. we'll be grappling with both of those. i think we need to see what the final q4 german numbers come out with, which is towards tend of the month and piece that together with the uk and probably take a video on uk, france, germany, which do we feel most comfortable with as we go into the secretary quarter? it's clearly not there yet. >> and it sounds like you might be saying uk. am i picking up on that? >> the uk has gotten expensive. the challenge is not financials. we will have to wait and see. >> santander is considering wrapping up its high street.

the report suggests the lender, which is already the uk's fifth largest high street bank is set for a possible 2 billion pound bid for the asset. santander saw its offer earlier for 316 branches of rbs collapse in october of last year. and an update on this story, the tricky takeover while trying to follow southeast asia's largest takeover continues to battle over singapore's fraser & neave. this is the seventh increase in an attempt to trump rival overseas union enterprise's bid. and the latest offer values the company at $11.2 billion. the battle has entered an auction process since none of the contenders want to settle on a final number just yet. the process is being led by singapore's takeover offer. japan's toshiba is reportedly eyeing british fuel producer

orenko. they are in talk wes various lenders to fund the possible takeover of about $13 billion. ureco is jointly owned by the uk and dutch governments along with two german firms. toshiba hasn't yet confirmed it's still interested. toshiba's shares were down about 11 is% today. u.s. and japanese investigators into the emergency landing of a boeing 787 are focusing their probe on a key batterymaker for the dreamliner. nozomu kitadai joins us live. >> japan's transport ministry and the u.s. federal aviation administration inspected the kyoto headquarters of the firm which made the battery bound burned on an all nippon airways 787 jet that made last week's emergency landing. one inspector from the transport ministry and two from the faa

conducted the administration. the joint team is looking into everything from battery design to manufacturing. the batteries are the focus after the troubled 787 batteries showed overeat heating. lithium ion batteries were once the culprit in a series of laptop computer fires years back. the u.s. has sent engineers to boston last week and the company says it's fully cooperating with this latest investigation. the company shares rose slightly in trade today. back to you, kelly. >> thank you very much for that. now just some news out of germany. we've been following the regional election outcomes. now the leader of angela merkel's coalition partner has offered to step aside, this according to a meeting from the fdp and reuters there. we'll bring you more as we get it. we'll continue to follow ramifications as we look at the

german election these fall. let's give a quick look at what's on the table for japan in asia. transportation wsh i should say. some key real estate trust residue to release, as well, including maple tree industrial. straight ahead on the show, it is cold outside. we'll take a look at how freezing conditions could impact your travel plans and maybe your investments, too. what are you doing? nothing. are you stealing our daughter's school supplies and taking them to work? no, i was just looking for my stapler and my... this thing. i save money by using fedex ground

and buy my own supplies. that's a great idea. i'm going to go... we got clients in today. [ male announcer ] save on ground shipping at fedex office.

welcome back to the show. ikea will have to waitthursday to know the destination of its stores to set up in india. the speedish furniture giant has asked india's foreign investment agency to reconsider. it's seen as a litmus test as political pressure mounts against it. for more, tamer joins us from

deutsche bank. welcome. thanks for your time. so these reforms that initially seemed to pave the way for the ikeas for the year go back to last year that got investors quiet. is this a setback or is eye kia expected with changes to be expected to proceed? >> this being india, it was not expected to be smooth going all along. i'm sure there will be some road bumps along the way. this is probably more of a technical issue than a profound setback, if you will. i think the authorities are committed to opening the economy up for retail investor segment. i think not one of those differences that is insurmountable. i'm sure something can be fixed. >> can you explain this brand issue a bit to those of us who are unfamiliar? what does it mean for eye kia for other retailers who may want to follow? >> for example, if walmart comes

to india, everything that gets sold under the walmart brand, it's fine. but if you want to set autopsy brand or a company which sell a slew of brands, then it will be, you know, several other thresholds or hurdles to overcome before that becomes an okay investment as far as the indian authorities are concerned. so that is where the issue is eye kia carrying noneye kia product comes in. >> how does it business model work? ikea, thinking about it from a uk perspective, the sale of scandinavian furniture into the uk is something we're used to. how does the business model work? is it exactly the same, to sell scandinavian products into india? >> i think the way it was supposed to work out initially was that you would have various products imported from china with the eye kia brand being sold in india. that is one thing. but if you want to then bring in products that are not ikea

branded, i think that's where the discontent or the desention is right now. as i said earlier, i don't think this is one of the insurmountable gaps. the reason the regulators wanted to have nothing but single brand retail, was the retail stores in india who carry a series of brands and the points was they were not going to face direct competition from the likes of ikea who would carry somewhat similar brands. >> you can imagine for the rest of us, it sounds like something will inevitably have to be reformed if india is truly going to open up its retail sector to competition. >> correct. but as you can see from the way continuedan markets have what i have had over the last few months, investors have fought the idea that the authorities were more open for business now than they were three or four months ago. they have incurred quite a lot of political costs, it sells at a very large step and hence the issue that we're talking about

today, whether ikea can do non-ikea products through its stores is not something that's the front of the investor attention and the markets seem to be doing just type. >> and there have been tremendous fund flows into india. is this seen as a positive thing, this infusion of capital and is it expected to be put towards productive uses to be invested to invest in the infrastructure and other difficulties that are still putting a lot of would-be foreign investors? >> right. it is absolutely essential for india, given that the country is running something in the range of 4% gdp deficit. the financing of that deficit needs to be on on an orderly basis, whether it's through fdi. the indian authorities are in a point where they simply have no other choice but to become more amenable towards foreign investment. and here, india stands somewhat at a contrast to the rest of the em world, if you think of countries like india or brazil or turkey, how do manage that,

how to do that on an orderly basis. in contrast to that, india has been too slow and now their back is against the wall to maintain stable macro environment, they need more flows and therefore, i think the market seems to be comfortable in thinking india has no choice but to remain open for business in a big way. >> you mentioned about two minutes ago rather more foreign investment becoming more amenable to this. i think those were your words. which would be the next sectors or the next stores which would have an interest in doing this? >> there's a host of things going on right now. the authorities have a series of reform sector initiatives in the pipeline which would in theory open up the insurance sector and the pension sector for more foreign investment. banking sector itself might be more open. there's a fairly exciting and interesting time. there's a lot of regulatory risks out there. function about a large chunk of the economy in the world, you probably will have a hard time finding a more exciting story than india at this juncture.

so things were pretty much in the dumb drums even six months ago. it's become quite exciting lately. >> and i wonder if we're not again going to hear the india versus china argument as this plays out. tamer baig, thanks very much. china, india, if you had to pick one, which do you think at this point? >> in the short-term, i have to pick india. i think the reforms will problem more rapidly. it is, after all, the world's largest democratic country. china has to be the ultimate winner in this one due to size, but i can the process of reform will be that much more difficult. i would probably be going for india right now. >> interesting. let's turn our attention back to europe for the time being. france continues to struggle under a blanket of snow making travel conditions chaos. air france was forced to shut its medium and short-term

flights. stephane is stuck in paris for us. stephane, was this a precautionary move? how bad is it there? >> it's a usual move. they have requested 40% of flight cancellations for the two main airports of the french capital. 40% of flights in general, the priority is given to international destinations. but as a result, air france has decided to cancel 50% of its national and european routes and it will operate normally to its long haul destinations. access to the airport might be complicated. yesterday pearis in the south of the french capital was not connected to the rail network because of power failures. so it's difficult also to go even into the airports. public transport is heavily disrupted in cities like paris, but also in lille in the north

of france, this morning, there are only 50% of buses running in paris. but if you look at the market reaction, air france klm is trading higher this morning. it's about 5% higher because of two recommendations. krit swiss ratings to neutral from underperform and sharply raised its price target for the stock to 8 euro 75. up from 650 with a neutral rating. so that's the reason why the share price is much higher this morning. on the ground, it's still chaos, but nothing unusual. 40% of consolation is what i was saying is the usual continue can know to operate. >> stephane pedrazzi there in paris for us, thanks very much. it's snowy here, allen, too. a lot of people are stuck at various places. is there a real gdp hit in these kinds of situations? >> i think if this just goes on for a week, we probably

shouldn't worry about it too much. clearly, if we get more and more snow and people stay home for longer and longer, the retailers will begin to suffer. the only caveat i've got is that after two or three days, if the snow starts falling, even with the roads are icy, people get fed up with staying at home and they start to go out again. at this point in time, i wouldn't be too worried. if we saw a winter like '63 where there's snow on the ground until march, clearly it will be a different story. >> there's no problem for staying cooped up with the family at home for a couple of days. >> we were talking about liking the uk relative to some of the core markets. interesting point, if we can show this chart of performance in stock markets for noneuro european countries and why whether some of the weakness that we've seen in currencies, if we look at the swiss market,

for example, some of the export numbers, bolstering these markets. do you like this on the credit side, as well? >> the trouble comparing the uk to other countries, in the case of the uk equity market, for example, is the very international market and, therefore, it's more globally focused. its performance is not really tied into the uk economy. you have to start looking at the second and the third tier of the uk companies. we need to also look at the credit markets. the nonfinancials are very, very safe names. they tend to overperform in a rally. as a result, when drawing comparisons between the uk and the nonuk, one needs to be aware of the fact that we're not comparing like for like. >> final point, just what are your favorite ideas? what do you think happens with trades in the next, say, four to six weeks? >> i think certainly going into the end of january, we continue to rally. i wouldn't get in the way of the risk on sentiment seems very, very potent. after that, i get really concerned, indeed.

i think the talks in the u.s. about the debt ceiling combined with spanish gdp coming out, my worries about german gdp, uk numbers at the end of this week, i think it is a rather unpleasant cocktail which is brewing. the last time, the story in the u.s. did stop the rally in its tracks. combined with bad news possibly later in the month, that could put a sense of reversal. i've been going for risk off in february and march. >> you're starting to fade this move. >> i'm recommending investors now start to back off and look for good ways of getting their risks down. >> all right. allen capper, head of strategy at lloyd's, thank you so much for your time. stick around. coming up, preparations returned way in washington for the inauguration of president obama's second term. what does it mean? we'll explore.

welcome to "worldwide exchange." i'm kemly evans. these are your headlines from around the world. all eyes on washington, d.c. today as president obama will be sworn in publicly for his second term, this amid continuing division owes capitol hill over physical policy. election below for angela merkel as opposition democrats take control of germany's upper house. investors pulling back in japan as the fed begins its two-day policy meeting widely expected to back more easing and a new 2% inflation target. and heavy snow brings travel chaos across northern europe. hundreds of flights canceled in

the uk, france and germany with obstruction expected to last for days. >> now we can look at u.s. futures which are trading until about 11:30 eastern time in the u.s. the rest of markets will be closed in the u.s. for a holiday. it's martin luther king day. it just so happens that it's also president obama's inaugurati inauguration. neverthele nevertheless, i want to take a look at they key levels we're focusing on. we're seeing s&p 500 futures 1479, adding a couple of points -- i guess it's slightly lower taking fair value into account. the levels we're watching are 1500 here, more psychological than anything. as the s&p has been flirting with five-year highs, a lot of people continue to ask about complacen complacency.

the nasdaq, the dow jones industrial average are roughly flat this morning and we will look in a second at their performance during president obama's first term and ask whether in some cases the doubles of these can be repeated. the cnbc ftse global 300 gives us a sense of overnight fractionally higher up 0.3%. the nikkei weighing on shares in japan. european markets are up .0 %. the ftse 100 is adding about .1% for its part this morning. we just learned that mortgage lending weakened in december. we get minutes from the bank of england on wednesday. we get gdp figures friday expected to show a contraction for that economy. the uk gilt is holding over 2%. italy's spain seeing a sell-off, those yields rising above the levels we saw over the past couple of weeks.

bund yields are also moving a little higher. forex, it's all about the yen. the dollar/euro is a little weaker. australia, a little stronger. sterling roughly unchanged. the dollar/yen down about .6%. let's bring li sixuan into the conversation now. she's in singapore keeping an eye on was been happening. sixuan, we've seen the yen test the 90 level and pullback. that's not sixuan. that's the capital capital. there she is. tell us what is happening and why there's been red arrows today. >> sure. the nikkei eased 1.5% ahead of the boj announcement tomorrow. investors are expecting a 2% inflation target, but as you mentioned yesterday, after hitting a new low, the yen has peared back some of its weakness against the u.s. dollar.

automakers rallied on expect ages with more supportive policies for green energy. this following the country's recent pollution problems. b shares also scored on hopes that more firms will announce buyback programs at a premium or convert b shares into hong kong listed h shares. elsewhere, the hang seng finished slightly weaker. this after the country's second largest telcomaker issued a profit warning. but do note that its rival posted a 33% jump in profits. the kospi ending slightly lower. the apple mrooi suppliers lost ground ahead of the tech giant's q4 earnings out later this week. the asx 200 ended marginally in the green. shares of national australia bank rose after reports it may get an offer to offload its uk

operations. india's sensex ended higher by .25%. back to you. >> sixuan, thank you very much for that. turning now to the u.s., president barack obama began his second term on sunday in a low key inauguration ceremony at the white house. gathered with his family in the blue room, obama put his hand on a family bible to recite the 35-word oath. >> i barack hussein obama solemnly swear. >> that i will faithfully execute. >> that i will faithfully execute. >> the office of the president of the united states. >> the office of president of the united states. >> today obama will attend his inauguration ceremony. the president will repeat the swearing-in ritual and give his inaugural address. joining us now is tippa, former

white house economic advisory under former president george bush. >> thank you. >> so a toned down affair. often the second time around there aren't considered to be many great shakes. >> well, that's right. but i think now the country is clearly even more divided than it was before. we had a reasonably clear decision for the president, but the nation is split and split over fundamental issues. the gun control issue is one of them. so more invasionive in terms of taxes, which clearly is happening. and less alienled on whgned on about it. should government tax harder or should spending be cut harder? not only is there no agreement, but the democrats now are saying, listen, forget the debt

ceiling. let's get rid of that silly little thing. but do we actually need a budget? >> so we're learning that we may finally get a budget for the first time in what, three years? significant, though, because these are just templates. >> i great, they are templates. but letting go at a time when the debt is compounding is worrying. however, having said that, you can get worried about that as a market participant, but as long as the federal reserve has open ended quantitative easing, nothing is going to happen from the long end. >> from a market point of view, we were talking about allen capper about this last hour. but from a market point of view, the best outcome is something that lowers the long-term debt outcome. but we keep get ago worsening of the long-term debt profile and a hit to the near term. that is a mix that markets understandably don't like. >> and as long as the fed is funding the federal authority so cheaply, what's their incentive to fix anything?

they don't care about the long-term debt profile. they don't be here when that happens. they care about right now and my voters right now. so i think the bottom line is what i see and all the industrialized countries head by the united states are telling you we're doing everything possible to create inflation. japan is doing it more overtly. the federal reserve is committed to that outcome. the question is will we get it? we are getting it the sflp do the fight the rhetoric or do you see we see it happening and we're going to trade accordingly? >> it's always silly to fight the central bank. and when all the central banks are leaning in an inflation direction, you have to to accept this is what's going to happen. >> u.s. republicans did indicate on friday their willingness to vote in favorite of an extension of the federal borrowing authority by three months. move by the senate to pass a

plan to reduce the budget deaf sit, but speaking on nbc's "meet the press" yesterday charles schumer said the senate will pass a new budget. the bottom line here seems to be that there are, as you said, serious differences in policy between these two parties that cannot apparently be bridged by compromise. is this idea of a grand bargain off the table? because you know obama would love to make that a crowning second term achievement. >> i think it's off the table. i think there's no grand bargain to be had. but even if both sides come to the table and agree, the basic facts preclude that outcome. the basic facts are even if you taxed americans 100% of their income, it would still pay take years to pay down the debt. so even if you taxed other issues, you can't pay down the debt for 15 1 years. if you could get both sides to

agree to do both, could you begin to fix it? i think the answer is still no because mreem is to have stop working if you tax them 100%. >> but wa do you think investor res sniffing out here when it comes to -- and we're hearing a lot of this rhetoric out of the gop about soul searching, trying to find new ways of sending a message to the american pull that they'll rally around. what does the gop look like for the next four years and how does it debt ceiling fit into that? >> i don't think republicans have any clear idea whatsoever of who or what ideas they'll be forward. there will a lot of soul searching going on. their idea is to find a sannish republican. that's why there's a lot of focus on ted cruz for 2016, a member of the senate. and i think they will get there eventually. but i think the real thing for investors is you can try ask play the macro picture, but don't do it without paying attention to the micropicture.

the micropicture is good in the u.s. >> but you know what's interesting, in talking about the gop strategy, it sounds like they think they can solve their ills by finding the right presidential candidate. >> i agree. >> is that papering over the long wrong? >> in the end, it comes down to a place where the u.s. has become a place where more people are beneficiaries of state than not. therefore, this old american idea that, you know, the freedom of the individual against the state has to win isn't playing with the general public. most americans agree you can't be right to have more people as beneficiaries of the state than funding the state. but that's the way it's gone. right now, the beneficiaries want to hand on to that. so republicans do have to come up with an answer to that demographic change and i haven't heard one yet. >> that does seem to be holy grail, as you say. pippa will stay with us.

first, we want to send you to the website. washington's bickering is shifting investors worried away from the eurozone back to the u.s. is it time to look at european stocks? cnbc.com has more on that story. also, german chancellor angela merkel lost a key regional election in lower saxony. the bellwether for germany's upcoming national election. is europe's most powerful woman losing steam? ublg ip find out more about that, too. and the world economic forum, davos, kicks off later this week. we ask, is davos the place for responsible capitalism or snow polo for the super rich? pippa, what do you think? snow po snow polo? >> there's a fair amount of snow polo. >> are you going? >> no. it is about a lot of press conferences. it's about people showboating and stuff. and is it a place where there's any solution to all the issues

that we're talking about or that your audience cares about? no. that's not where it's going to happen. >> we will hold out hope that this year is going to be different. ross westgate is there. pippa will stick around. up next on the program, is the outcome of elections in the lower state of saxony a barometer for this year's success? we'll find out. what are you doing?

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welcome back to "worldwide exchange." these are your headlines. washington bracing for obama's public inauguration as lawmakers signal some progress on budget talks. angela merkel's coalition alley phillip rossler offers to resign as coalition partner. and travel chaos across northern europe. hundreds of flights grounded in france, the uk and germany. germany's social democrats are celebrating a stunning election victory in lower saxony, seen as a barometer for the federal election this fall. it was secured with a majority, though, of just one seat. the central left party will assume control in germany's fourth largest state in ra coalition for the green. report for angela merkel's

christian democrats fell by 6.5 points. though the chancellor herself continues to ride high on opinion polls. sill video ya wadhwa has more on what this means. germany's elections were meant to be the barometer for the federal elections in september. but what did come out of it? we learned a number of things. first of all, it can be very tight because it was a cliffhanger up to the last moment. that could happen in the federal elections. secondly, the ones that looked like winners in the early evening might actually turn out to be losers in the end. as we know, the parties that won the elections and certainly the liberal democrats at the end of the day did not make it back into government. neither did the cue and largely anything can happen. and that's something that we can take back to the federal elections. certainly, it's a fly in the ointment for angela merkel and the liberal democrats that they

lost the government in the lower saxony, always been one of the pivotal states especially a few months ahead of the federal elections. and for the spd, they did make it into the parliament, they got a historic high of almost 10%. so they told many doomsday prophets, we're not gone yet. don't count us out for the federal elections and maybe a brownie point much under pressure. economics minister of the liberal democrats who was about to be pushed into resignation. he might be able to hang on to his polls. other than that, it wasn't a real win for the social democrats, either. angela merkel's challenger in the federal elections as chancellor, it haib much under pressure recently for a number of let's say unwise remarks that have been certainly hyped, but that sent him down in the popularity charts. we've seen the charts going up for angela merkel and down for

steinbrueck. so the social democrats are not the real winners, even though they are going to come up with the prime minister, with the chief minister's job in lower saxony. they're going to lead the government there. but the real winner in these electrics are the greens with more than 13%. they more than doubled their votes in lower saxony and that is indeed a trend that we've been seeing in many german states, in many german regions and one says even for the first time took on the lead role, took on government. so i think for the federal elections, the green might play a pivotal role. they might play a pivotal role in pushing the two parties back into a branch quality. as i said, anything can happen this year. >> love silvia wadhwa's analysis. as she said, watch the greens. they could be key to what happens. in further developments this morning, merkel's ally phil

glosser has offered to stand down according to party sources. the fdp has performed poorly in national opinion polls under his leadership. he was under from pressure to re-zeeb if election necessary lower saxony didn't go well. 43% of people are optimistic about president obama's second term. we want to know how do you feel about the next four years? joining the conversation, worldwide@cnbc.com. you can also tweet us. do you tweet? >> i will be shortly. but not yet. >> have you put a tease into the name? >> it's just really going to be pippa. >> is pippa available? >> well, dr.pippa, which is a bit unfortunately, but that's all i could get my hands on. but it's just going to be about signals in the world economy

that i think are important to pay attention to. >> dr. pippa, keep an eye out for that one, too. pippi a will be on for the rest of the hour. straight ahead, today is all about his inauguration. we'll take a look at the challenges president obama faces from asia in particular in his second term. you don't want to miss it. ♪ [ male announcer ] how do you turn an entrepreneur's dream... ♪ into a scooter that talks to the cloud? ♪ or turn 30-million artifacts... ♪ into a high-tech masterpiece? ♪ whatever your business challenge, dell has the technology and services to help you solve it.

as barack obama is on sworn in for his second term as president, what challenges does he face looking east? relations between the u.s. and china ma do seem to top the agenda again as territorial tensions continue to simmer in asia. the question is whether the u.s. will be caught between china and its neighbors. joining us now for more, adjunct professor at hong kong university of china and technology, the chinese university of hong kong. frank, welcome. this is almost perfectly summed up in events today where we saw the yen initially respond to china entering in surveillance mode these disputed seas, again. the u.s. in the meantime has reiterated it stands with its existing treaty wes japan. as president obama takes office, do you expect this to about be one of its top challenges? >> well, i think the top challenge in asia will continue to be china as it was in its

first term. and the thing is, the u.s. is an ally of japan's and has said while it doesn't take a position on sovereignty of the island necessary dispute, that the islands are covered by a security treaty of japan. and i think that china has been trying to change the status quo because the wording of the security treaty is such that it covers areas under japanese administration. and the chinese have been sending their ships into the area, sending their planes into the area and thereby challenging the administration of japan in that area. over the weekend, hillary clinton has just said that -- she didn't name china, but it was clearly who she meant, that known should try to change the status quo. and china is very unhappy. >> yes, of course. professor ching, i think it was the january 14th announcement

that the people's liberation army should begin preparing for actual combat training, more -- and not necessarily meaningful in and of itself, but it does signal -- and this is important because it's not only japan with whom china has these territorial disputes. they have them with pretty much every single neighbor over islands in the south china sea. so what is your thought about that? >> well, they have active disputes with japan, vietnam and the philippines. and other disputes, also, with malaysia and bornea. but i think that the main dispute right now, the one that is really on the front burner, is with japan. and i don't know how this is going to be resolved because i don't see either party stepping down. and both driven by nationalism. there is rising nationalism in japan and we see that by the fact that the new prime

minister, shinzo abe is seen as a right wing nationalist. and he was elected last month. but i think through logic sense, japanese nationalism is fed by the anti-japanese rhetoric that has been coming out of china for, oh, the last 20 years or so. because -- frank, i'm sorry, i was going to say if the u.s. wanted to be proactive here, what would it stand to be? what would president obama said today or in the state of union address? it seems now if the u.s. is just hoping that it can maintain the status quote. >> yeah. i think the u.s. has been telling both parties, china and japan, to restrain themselves, to be calm. and i don't see what else the u.s. can do. i mean, behind the scenes, i think they are telling people to be calm. but then they do not want to encourage china to take any kind of action so they keep saying these islands are protected by

the united states and, in fact, that they come under the treaty. >> what's the biggest risk here for the next couple of months, especially given all the events that are simultaneously happening and in the middle east. a lot of focus from washington is going to be in that direction. what are the hurdles we have to get through in the next two on three months ago the u.s. continues its gradual pivot east? >> well, i think the greatest risk is that some incident actually occurs. because in the past, they were just japanese tow boats in the area. and now every day the chinese are sending their own surveillance ships into the area. and the chinese tell the japanese to get out because these are chinese waters and the japanese say the same thing, that these are japanese waters and china should leave. now it's not just shipping. there is added dimension. the japanese are sending fighter jets and the chinese have now

sent their fighter jets. so if there is an incident, if there's any shooting at all, it could escalate very rapidly. >> frank cheney, from hong kong university. thanks very much. pippi, as you said, it's almost tit for tat. >> i don't think that's going to be the issue. i think the closer thing is going to be to watch chinese workers attacking japanese production facilities in china and possibly american at some stage, as well, just because they are mad about this dispute and shutting down production. >> and that happens at the end of the laugh year. coming up, we'll assess if india could be headed for a far right coalition and walk through it.

welcome back to "worldwide exchange." if you're just tuning in, i'm kelly evans. these are your headlines from around the world. all eyes on washington, d.c. as president obama will be publicly sworn in for his second term. this amid some signs of progress on capitol hill over budget talks. an election blow for angela merkel, though. the cdu is edged out of power in lower saxony. meanwhile, her economy minister phillip rossler offers to resign at head of the fdp. heavy snow brings kayo as

kro northern europe. hundreds of flights are canceled in the uk, france and germany with disruptions expected to last for days. >> announcer: you're watching "worldwide exchange," bringing us business news from around the world. u.s. stocks will be closed to celebrate martin luther king day. futures are trading and will be trading until about 11:30 eastern time. very few surprise. very few people would want to get exposure here given the limited number of events that we're seeing. the dow jones industrial average is looking to shed -- futures looking down with fair value into account by almost 10 points, similar for the nasdaq and s&p 500. no major moves here. the main point is quite shirchlly there's a lot of these indexes close to five-year highs and the question is whether they can continue trading at these levels. european markets for the most

part have been in the green. we're seeing the ftse adding about .25%. a third of a percent to the xetra dax. the ibex 35 is participating in the rally. just how do you make money in these markets? here is what some of our guests have been telling us all morning. >> everyone is -- is long the dollar short the yen. so there will be a larger question involved, you know, coming up soon. but the upside i'm seeing, strong bullish trends. i don't see how that is going to -- it is not going to continue. >> the next infligz points for markets is going to be italy, not germany. >> and that focus of the debt ceiling is going to come back in focus in the u.s. and that's going to perhaps drive us into a pretty good correction over to near term, but that would set us up for the resumption of longer

term. >> preparations are under way in washington for the public inauguration of president obama's second term. so just what will the next four years bring? here is a reminer at least in terms of markets as to what's happening during president obama's first term. we've got a did you mean double b for the nasdaq there, a 75% gain for the s&p, 65% for the dow jones industrial average. same vote, of course, lifting oil. those prices up significantly over the last four years with brent in particular up almost 60%. nymex up 35%. will it be four more years of the same? joining us now is hugo dixon, editor at large reuters news and pippa maumgren. hugo, do you read these levels sass a verdict at all of what president obama did or do we ignore presidents when it comes to market trading? >> well, no, i think he deserves some of the credit. he did help stabilize the

situation. bush had done a little bit with the t.a.r.p. program. but then in -- i mean, i would say particularly tim geithner did quite a good job with the whole u.s. bank stress test in 2009. that and sort of the sense of panic in the markets is gone. so that is what you see. but you're not going to see another 75% increase over the next four years because you don't have the same debts so recovery from. >> and people talk about what a challenging time it was tour years ago. i want to know in some ways if it wasn't easier. when you're in an acute crisis, there's a certainly sense of how to respond. what happens now? there's a lacking -- there's not a sense, a clear sense it seems coming from washington as to how to proceed. and i wonder if that's not going to be reflected in markets. >> well, i think that's right. i mean, america still has got to deal with its deficit. okay. we've gone over the cliff, now we have the debt ceiling.

but, you know, even if they get over those two short-term problems, you still have got the problem of a massive deficit, which is going to have to be reigned in. at some point, you're going to get a fiscal squeeze in america and that is going to put a break on what is not very far from economic growth. i think you'll have that which is always something that is going to be there in the background. you have a lot of debt, as well, still in the private sector, which needs to be fluffed off. there's a deraef raejing that you've been seeing right across the western world is still going to go on, i think, for the best part of this decade. >> and we heard leading up to this election that rarely has a u.s. president been elected with such high levels of unemployment. what was different this time? >> oh, i think it had something to do with the candidate he was facing not being able to energize the public. but i also think, look, reflation? the public loves that, right? free money. >> but do they love what's happening with gas prices?

we showed what was happening on the flip side. >> i agree. and i've long emphasized that is the flip side of the coin but i don't think people have connected that entirely. but when you talk to central bankers, the primary worry is that we are still running monetary policy as if we're in an emergency and that there genuinely is no exit strategy. you hear ben bernanke and others talk about how we know how we're going to exit and then privately they get together and they have not even discussed it. >> i don't know. i wonder if you haven't heerd more about the exit, at least in the early years, i think i heard a lot about the exit strategy and instead, the opposite came to bear. do you agree that it's time to exit the emergency stimulus measure? >> i don't think that pippa was saying that, actually, but i do agree with her that there isn't a clear exit stratgy. and i do agree that one of the things that has been boring all of these asset prices has been

incredibly cheap money and the lack of an exit strategy. in terms of what you need to do at the moment, i think certainly -- i mean, in america, i would be tempted to start thinking about an exit strategy. i think in europe, we're still far too fragile. it's only eight months since we were looking at the abyss in europe. so i think in europe i would be tempted still to keep the stimulus going for a while. >> and from your point of view outside the u.s., we've heard a lot about how america needs to get its own house in order, to make sure it doesn't disrupt global trade asking whatnot. does the president have a choice, i guess, when it comes to what agenda he pursues next? do you expect or think this should be high up there, meaning domestic reform, or is it going to be another case where the term becomes almost defined by what's happening abrd by foreign policy? >> i don't think so.

i think that -- i mean, the big thing is the deficit and that is something that he needs to tackle. and if he can get a balanced agreement where you have, you know, on a sustainable basis, not just in this short-term, but in the medium and long-term within reduction in expenditure and some increases in taxes, i think that would be good. on the other hand, you have the gun control question which is another big domestic issue which is going to to drain a lot of his political capital, but which he's decided to get stuck into and i don't think there's any retreat from that now. >> final question, do you expect there to be a grand bargain, yes or no, this year or during his second term when it comes to deficit and debt reduction? >> i do expect it in his second term, yes. >> pippa? >> i don't. >> okay. more skepticism about it, but we like your optimism. maybe they will be inspired to come to some sort of agreement. stay there, both of you. next, we'll bring you the latest

on algeria as the death toll from the hostage crisis rises. stay tuned for that. what are you doing? nothing. are you stealing our daughter's school supplies and taking them to work? no, i was just looking for my stapler and my... this thing. i save money by using fedex ground and buy my own supplies. that's a great idea. i'm going to go... we got clients in today. [ male announcer ] save on ground shipping at fedex office.

the death toll in algeria has topped 80. algerian security forces search the plant. suspected al qaeda fighters stormed the facility last wednesday demanding an end to french hostilities in mali. france is continuing its ground attack in mali this morning marching on a town of diabli. however, despite an alleged wire terror theft posed by islamist in the region, some accuse the united states over dragging its feet over logistical party from paris and its constituency. >> stephane, is there a sense there that the oos carrying its water? >> clearly, it's a global feeling here in france, even if there's no clash between the two countries. over the weekend, a spokesman for the french president insisted that the united states were providing invaluable intelligence to help the french campaign in mali.

in every the less, there's a growing frustration after the limit limited interest in the united states. officials in france feel that the demand for repayment is underlining the limited -- that washington is providing in this african continue innocent, and given that other countries, like canada, has a need on the back of this area. it was announced yesterday by the spokesman, still, the french administration feels that the u.s. could do more to help those in mali. france has requested some u.s. drones to help the french

operations. but on that for these two requests, washington hasn't given a new reply yet. officially, france understand that after 11 years in afghanistan, the united states doesn't want to engage in another war, but still, it believes that the united states could do more to help fighting terrorism in africa. that's the official version. >> okay. stephane pedrazzi out of paris for us. it does seem to be a telling reaction from the u.s. >> well, look, it's pattern. prsh doesn't want to get into foreign policy issues in the second term and we don't have enough money to do it, as well. so we saw this with israel in august with the joint military exercise and at the last minute we went, oh, i think only about ten people can show and that was the beginning of israel ramping up the iranian nuke clear issues. and we'll have more on though

elections in a few minutes. washington is bracing for obama's public inauguration has lawmakers signal some progress on budget talks. and-snowfall bringing travel chaos across northern europe. hundreds of flights grounded in france, the uk and germany. tomorrow, israel holds its general election smp some thought it was a gr going confusion.

welcome back to the program. a quarter to a third of a

percent up across the board. here is an interesting landlord for you. iceland's finance minister saying a referendum to join the european union could be held in autumn 2014. we're not hearing a lot about people joining the eu lately. if anything, it's the uk might exit. >> yeah. this long delayed speech by david cameron, the british prime minister, which is supposed to come up with some sort of call for some sort of referendum, i serpt won't we 2016, 2017 or 2018. i think there is a bigger risk of a brixet. but either there won't be a referendum because david cameron won't win the next election or there will be a referendum ask is we still won't leave the eu.

but i think very damaging for investments and confidence that you have this thing that could be hanging over us for five years. >> exactly. this is not an issue that's going to be resolved in the near term. but, you know, iceland wants in, so it can't be all bad. as israelis heads to the polls tomorrow, most are expecting a victory for benjamin netanyahu. but while a third netten what hue terms remains a large possibility, david joins us with more. so thank you. the timing of this national re-election, which of these is most important to your point of view? >> well, they're all important to various different degrees. netanyahu is marked to win the election. the right wing block is likely to emerge as the most powerful.

so we are expecting a right wing government, potentially a more right wing government than the one we had the previous five years. so, i mean, if year looking at potential coalition partners, we have the new right wing party or the resurgent right wing party is perhaps one of the obvious ones. but perhaps, as well, you know, really would be looking -- netanyahu, i'm sure, would be looking at the parties in the previous government to help inform the next government. >> we know netanyahu and obama visibility had the coziest of relationships. how does that complicate their relationship in the second term? >> well, it does appear that the tensions are becoming harder and harder to obscure. the two just don't get along. they're from different ends of the spectrum. i think it is going to be increasingly difficult.

there are issues which the two fundamentally disagree. the u.s. is clearly intend on pursuing the iranians from getting a nuclear program. but israel even even that should be given the amount of ott sympathy. >> and where does this lev britain in all of this? >> i think the big issue as far as the israeli election, indeed, does it change the situation as far as the palestinian peace process is concerned? and i think as far as iran is concerned, i don't think that the israelis are going to do anything unilaterally. i think it is going to be fundamentally driven by obama's assessment of whether or not the strategy of sanctions and containment can get enough quickly enough or whether he

calculates that it's important to go and bomb nuclear weapons facilities. >> we've been talking about gop. this is one of the main issues that obama is not hard enough when it comes to israel and iran. >> that's right. there's issues tricky for the gone because most of the jewish lobby in the united states tend to vote democrat. so you're not going to swing them. although they are distressed with obama about his lack of -- on the issue. so i think foreign policy anterior a big driver, u.s. electrics, anyway. so in the end, they're still on their own. they're telling we tell. it's not that they're doing nothing, it's over the later. >> and what's your view as to

how these two are evolving inspect a lot of people look at the spring when we often might see action. >> yeah. i think these -- i mean, you're right to say that the gop really doipt have leg to stand on. simply in one way because obama is effectively following the policy that george w. bush did beforeha beforehand. going forward, i think israelis -- on the he them will say can they do this? i tend to subscribe to the view that a healthy relationship between them and the u.s. is going to have to be fungal. but i also agree with the view that obama is unlikely to take that action in the near term 37. >> david, last question. speaking of north africa, while we've got you, the latest on the algerian situation seems -- the

information still is becoming to us not this any real sort of clarified way. what happens now? do you think president obama will have to address a new approach to africa? >> the u.s. has been building in north africa for at least a decade, in toerchls trying to build up the ministry of mali, particularly the algerian army doesn't heed to a -- yeah, that's for sure. it could be weeks, months, years. thank you so much both for your time. stay with us. straight ahead, we'll have a look at travel casts across the continent. we'll be right back. ♪

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